A Backdoor Roth IRA is a clever retirement savings strategy that allows individuals to contribute to a Roth IRA, even if their income exceeds the limits set by the IRS for direct contributions. This strategy is especially useful for high-income earners who want to take advantage of the tax benefits that Roth IRAs provide.

In this guide, we’ll break down what a Backdoor Roth IRA is, how to execute it, and how to properly report it on IRS Form 8606.

What is a Backdoor Roth IRA?

A Roth IRA is a type of individual retirement account that allows you to make after-tax contributions and grow your investments tax-free. When you retire, you can withdraw the money without paying taxes on the gains. However, Roth IRAs have income limits. For example, in 2025, individuals with a modified adjusted gross income (MAGI) above $153,000 (for single filers) or $228,000 (for married couples filing jointly) cannot contribute directly to a Roth IRA.

A Backdoor Roth IRA allows you to bypass these income limits by first contributing to a traditional IRA (which has no income restrictions) and then converting those funds into a Roth IRA. This process is entirely legal, but it requires proper reporting on your tax forms.

Step-by-Step Guide to Doing a Backdoor Roth IRA

Step 1: Contribute to a Traditional IRA

Since there are no income limits for contributions to a Traditional IRA, you can make the maximum allowable contribution. For 2025, the contribution limit is $6,500 ($7,500 if you're 50 or older).

If you don't have an existing Traditional IRA, you will need to open one with a financial institution like a brokerage or a bank.
The contributions you make to a Traditional IRA are typically not deductible if you or your spouse are covered by a workplace retirement plan and your income exceeds certain thresholds. However, this does not affect your ability to convert the funds to a Roth IRA.

Step 2: Convert the Traditional IRA to a Roth IRA

Once your funds are in the Traditional IRA, the next step is to convert them into a Roth IRA. This can be done by simply transferring the money to a Roth IRA account. You will owe taxes on any pre-tax funds converted into a Roth IRA, but since you likely made a non-deductible contribution, your tax liability may be minimal or zero.

You can convert the money immediately or wait a period of time. The key is that you are converting the Traditional IRA to the Roth IRA as soon as possible to avoid any significant growth (which would be taxed when you convert).

Step 3: Report the Conversion Using IRS Form 8606

After performing the Backdoor Roth IRA conversion, you need to report the conversion to the IRS. This is done using Form 8606, which tracks non-deductible contributions to IRAs and Roth conversions.

IRS Form 8606: How to Report the Backdoor Roth IRA Conversion

IRS Form 8606 is crucial for ensuring that the IRS is aware of your non-deductible contributions and Roth IRA conversions. Here’s how to fill it out:

Part I: Non-Deductible Contributions to Traditional IRAs

This section is where you’ll report your non-deductible contributions to the Traditional IRA. You’ll complete Line 1 by entering the total amount of your non-deductible contributions.

Part II: Roth IRA Conversions

After making the conversion from the Traditional IRA to the Roth IRA, you'll need to report it in Part II of Form 8606. Specifically, you'll:

Enter the total amount converted to a Roth IRA in Line 16.
Report any taxable amounts in Line 18.

For most Backdoor Roth conversions, if you haven’t had any pre-tax funds in your Traditional IRA, the taxable amount will be zero. But if you have any pre-tax contributions in your IRA, you'll owe taxes on that portion.

Here’s what this part of Form 8606 looks like:

Key Sections:

Line 1: Non-deductible contribution to Traditional IRA
Line 16: Total converted to Roth IRA
Line 18: Taxable amount of conversion (if any)

Example of Form 8606:

Let’s say you contributed $6,500 to your Traditional IRA and converted the entire amount to a Roth IRA. If the contribution was non-deductible (after-tax), your taxable amount on the conversion would likely be zero.

In Part I, you’d enter the $6,500 in Line 1. In Part II, you’d enter $6,500 in Line 16, and $0 in Line 18 since the conversion is not taxable (because you didn’t get a tax deduction on the contribution).

Pros and Cons of a Backdoor Roth IRA

Pros:

No income limits: High earners who exceed the Roth IRA income thresholds can still take advantage of the tax-free growth offered by Roth IRAs.
Tax-free growth and withdrawals: Once the money is in the Roth IRA, it grows tax-free, and qualified withdrawals are tax-free as well.
No required minimum distributions (RMDs): Unlike Traditional IRAs, Roth IRAs do not require you to start taking distributions at age 73.

Cons:

Complexity: The process of doing a Backdoor Roth IRA requires multiple steps and careful record-keeping.
Tax implications: If you have other pre-tax funds in IRAs, the conversion will be partially taxable, which can result in a large tax bill.
Potential for IRS scrutiny: While Backdoor Roth IRAs are legal, the IRS could scrutinize them more closely if they suspect you’re not following the rules correctly.

Final Thoughts

A Backdoor Roth IRA is an excellent strategy for high-income earners to get money into a Roth IRA and benefit from tax-free growth. However, it requires proper execution, including filling out Form 8606 to ensure that everything is reported correctly. Be mindful of the tax implications, especially if you have other pre-tax funds in IRAs.

If you’re unsure about your specific situation or need help filling out Form 8606, it might be worth consulting with a tax professional to ensure you’re maximizing the benefits of this strategy and staying compliant with IRS rules.

Hope this blog helped clarify how Backdoor Roth IRAs work and how to report them using IRS Form 8606!

Author:

James Hargrave, MBA, CFPⓇ, CLUⓇ

Everything You Need to Know About Backdoor Roth IRAs